Chapter 2 - Professional standards Flashcards
Professional standards
matter of the public interest as they add to the quality of assurance services
Audit regulation purpose
promotes comparability of financial statements which are all audited to the same standards and therefore improves public confidence
Assurance engagements will consider:
- Ethics
- Risk assessment
- Terms of engagement
- International standards on quality management
UK audits are governed by:
- Companies act 2006
- International standards on audit (ISAs)
Financial reporting council:
supervises accounting related issues and issues audit / other standards within the UK. The FRC has a structure that focuses on various purposes.
Structure of the FRC - The executive committee
Handles the FRC’S everyday operations
- such as programmes, policies and resources
Structure of the FRC - the governance committees
The audit and risk committee
- provides financial, IT, legal and regulatory oversight
The people committee
- offers challenge and direction for recruitment, remuneration, talent management and other staff welfare issues
Structure of the FRC - regulatory committee
The conduct commitee
- oversees the enquiries, investigations and enforcement function, considering cases of memebers’ professional conduct
climate pillars
- governance
- strategy
- risk management
- metrics/targets
block chain
- digital set of records/transactions where individual digital items (blocks) are linked together in a public database
- information available on multiple computers is made public
- more secure as unalteres after processing
- risks with understanding emerging/ developing technology
joint audit
- more than one audit firm will be responsible for the audit opinion
harmonisation
process of aligning global standards to that companies are audited in a comparable way regardless of location
Harmonisation - provisions
- Change of audit firm at least every 20 years
- Improving the quality of audit and reporting
- Cap on fees for non-audit services
- Mandatory re-tendering after 10 years
- Ban on providing non-audit services (including tax advice) to PIEs
why are professional standard important
its in the public interest for professional standards
t or f
the financial reporting council issue auditing standards which auditors are required to follow
True
Auditors in the UK are required to comply
- International Standards on Auditing (UK)
- The FRC’s Ethical Standard
Why do firms undertake risk analysis
- to ensure that the assurance provider believes an appropriate conclusion can be drawn
- to assist in determining an appropriate fee (that reflects the risk of the assignment)
Benefits of an engagement letter
- objective of the audit of the financial statement
- scope of the audit of the financial statement
- responsibility of management
- including their responsibility for prep financial statements
- prevention and detection of fraud
- responsibilities of auditors
- auditors requires unrestricted access to records
- the level of assurance provided by an audit
- expectation that management will provide written representations
- helps avoid misunderstandings and closes the expectation gap
- informs management about contractual terms of engagement
Explain why an external auditor of a company should be objective and independant
- Issues arising in the prep of financial statements involves use of judgement
- Auditor needs to be unbiased in forming the audit opinion
- Directors may make biased judgements
- ## Independance increases the likelihood that and auditor will be objective
Describe the role of the ethics partner within an external audit firm
- Responsible for firms compliance with FRC ethical standard
- Assesses implications of any breach of the FRC ethical standard
- Gives consideration to whether policies and procedures are properly covered in training
Issues that should be stated when considering fees
- seniority and professional experience of the persons necessary engaged on the work
- time expended on each
- the degree of risk and responsibility which work entails
- nature of client’s business, the complexity of its operation and work to be performed
- priority and importance of the work to the client
- any expenses incurred
